Jordan banks issue sukuk for Rajhi Cement


Updated Thu, 21 Apr 2011 00:00:00 GMT

Jordan's Capital Bank has completed the sale of a $120 million Islamic bond, or sukuk, to Saudi Arabia's Rajhi Cement to finance the firm's capital expansion projects in the kingdom, bankers said on Wednesday.

The sukuk transaction, the first of its kind in the kingdom, was made possible despite the absence of local laws for issuance of sukuk that allow a borrower to forgo title to assets or property when they borrow as required under Islamic compliant Sharia-terms.

Several Jordanian banks, including Capital Bank, the sole arranger of the deal, were involved in the deal including Cairo-Amman Bank, Union Bank, Jordan-Kuwait Bank, Bank of Jordan and Islamic International Arab Bank.

Bassem Khalil Al-Salem, the chairman of Capital Bank, told Reuters the deal would expand borrowing options in the local banking sector and tap the growing Islamic finance market.

"This will set a precedent for future transactions in Islamic sukuk," said al-Salem.

Bankers say they went around the local legal loophole by setting up a special purpose vehicle (SPV) abroad in which the assets of the seven-year ijarah (sale-and-leaseback) deal were transferred to the banks.

Islamic law requires sukuk to be backed by the transfer of tangible assets where investors become the legal owners in case of default.

Rajhi Cement will use the funds to finance an expansion project in Jordan, where its factory in the northern city of Mafraq began production last year.

Jordan's Islamic lenders have seen growth in the range of Sharia-compliant products from ijarah, mortgage financing, and murabaha, or cost plus financing used to for asset purchases, to equity-type products such as profit-sharing mudaraba.

The government has said it was working on ironing out legal impediments that stand in the way of issuance of sovereign sukuk through changes in existing laws.